National or Regional Currency: Pakistani Rupee, PKR
Population: 174,578,558 (July 2009 est.)
Area: total: 796,095 sq km
Status: 27th largest economy in the world in terms of purchasing power, and the 45th largest in absolute dollar terms.

Sunday, December 19, 2010

IMF seeks 100pc guarantee on RGST

Pakistan has landed in deep trouble after the incumbent government has postponed the tabling of the RGST Bill in the National Assembly as the country has exposed to ‘severe credibility crisis’ before international financial institutions, a senior Finance Ministry official told our sources. To avert the crisis, the official said, Pakistan had formally asked for an extension of the Standby Arrangement Programme for three months time till March 31, 2011, but the IMF wanted to know how the government would get the RGST Bill passed and enforced by the new deadline.

“Factually, the IMF is seeking 100 per cent guarantee from the government to enforce the RGST Bill by March 31, 2011 and for this credible course of action is needed to submit before the fund. If the government fails to assure the IMF about 100 percent enforcement of RGST by 2011, then no extension will be extended to Pakistan.”

The official said this meant that Pakistan would lose its credibility before the donors, who in return would not extend any loan to Pakistan.

“So the liquidity from the external sources will come to an end and tremendous pressure Pakistan will experience on foreign reserves which are mainly arranged from the IMF for balance of payment,” the official added. When contacted, Raphael Anspach, a spokesman for IMF in Washington, said the IMF and the Pakistani authorities were presently holding discussions on the possibility of extending Pakistan’s Stand-By Arrangement.

In case of non-enforcement of RGST from January 1, 2010, the official claimed the budget deficit would swell close to seven per cent (over Rs1 trillion) against the target of 4.5 per cent meaning that financing from external sources will not be available. So the government will have to go for heavy borrowing from the central bank of Pakistan to finance the deficit. The local currency would also further devalue and its parity with dollar will be hovering at Rs110:$1 from Rs85:$1. “Keeping this situation in view, the Pakistan government could impose exchange control.”

The heavy borrowing from the central bank to finance the deficit will also expose over 173 million countrymen to massive hike in inflation. This appalling situation may result in massive capital flight from the country.